Investor Caution to Persist Until End of Year Despite Signs of Stabilisation
Colliers' Q3 2025 Real Estate Investment Forecast describes a UK commercial property market that is steadying but still wary. Inflation, expensive borrowing and weak consumer confidence continue to weigh on activity. The Bank of England has cut rates by 125bps since August 2024, but gilt yields remain high and debt has become only slightly cheaper.
Oliver Kolodseike, a Director in Colliers' Research & Economics team, said some parts of the market were proving resilient, with industrial and retail drawing interest and yields settling, but that any recovery in values was likely to be modest and patchy.
Investment in Q2 totalled £12 billion, 15% below the five-year quarterly average but up from £10.3 billion in Q1. Industrial accounted for the largest share at 24%, ahead of offices at 22%, retail at 18% and residential (including PBSA) at 16%. Colliers expects all-property equivalent yields to ease slightly, to 6.53% by the end of 2025 compared with 6.61% twelve months earlier.
Mark Girling, Executive Director in Capital Markets, said investors were favouring inflation-linked long-income assets, and that momentum was building in data centres, life sciences, food stores, out-of-town retail, single-family housing and central London offices. He added that buyers and sellers were waiting for clearer pricing, so volumes would stay low and yields broadly flat until then.
Retail was a relative success, with £2.2 billion invested in Q2, 8% above the five-year average, and overseas buyers behind almost 60% of deals. Examples include GTAM Apex paying £114 million for Lakeside Retail Park in Thurrock and MDSR Investments' £99 million purchase of Festival Place in Basingstoke, reflecting a 10.5% yield. All-retail rental growth is forecast to rise from 2% in 2024 to 2.9% in 2025.
Office investment reached £2.7 billion, still 25% below average, although the West End passed £1 billion for a third quarter running. Colliers has cut its 2025 office total return forecast from 7.7% to 6.2%, averaging 6.5% a year to 2029.
Industrial investment rose to £2.5 billion, led by LondonMetric's £699 million purchase of Urban Logistics REIT. Large warehouse take-up reached 7.7 million sq ft, up from 6.6 million sq ft. Industrial total returns are forecast to ease from 8.3% in 2024 to 7.5% in 2025, averaging 7.4% to 2029.
Elsewhere, PBSA investment rose to £470 million, residential dropped to £560 million and hotels fell to £520 million from £580 million.
